Maryland’s Minimum Wage a Big Boost for Genuine Progress

Raising the minimum wage is a big win for workers, communities, and business. Decades of experience with state-level wage increases bears this out well, but often this reality is drowned out by the clamor of corporate profiteers who have done a pretty good job so far at showing their disdain for low-wage workers and thwarting federal legislation. Think tanks like the Economic Policy Institute have helped inform this far too contentious debate with solid economic analysis – EPI estimates that raising the federal minimum wage to $10.10 by July 1, 2016 would raise the wage of about 28 million workers by about $35 billion and create about 85,000 new jobs. But these conventional metrics only scratch at the surface of deeper economic benefits better captured in more comprehensive metrics like the Genuine Progress Indicator (GPI).

The GPI was adopted in Maryland by Governor O’Malley in 2010 to provide a more meaningful measure of economic performance than gross state product (GSP), the state-level variant of gross domestic product (GDP). Unlike GSP, the GPI takes the costs of inequality into account as well as a wide range of environmental and social costs and benefits that have bearing on the economic wellbeing of American households.

Using the GPI as a framework for analysis, CSE has just released a study analyzing the economic benefits of Maryland’s new Minimum Wage Act (HB 275), which raises the wage floor for most employees to $10.10 by 2017. We found that benefits of HB 275 will likely top $2 billion a year. These benefits take the form of reduced costs of inequality, underemployment, and crime as well as enhanced consumer expenditures and services from household capital as lower-wage workers earn enough to make improvements to their homes. While there will be a small offsetting effect on the income some business owners may bring home and some increases in state and government payrolls, such costs pale in comparison with any of the benefits we quantified.

Two key messages emerge from this exercise. First – congratulations to the 2014 Maryland General Assembly. Raising the minimum wage is a significant tool for accelerating the economic recovery and addressing the inequality crisis head on. Let’s hope federal decision makers can follow your leadership. Second – let’s stop buying into conventional economic analysis when it comes to major legislative initiatives. Alternatives like the GPI have a lot to offer in bringing to light significant economic benefits that would otherwise be lost in the debate.

Most states now rely exclusively on “fiscal notes” to evaluate legislative proposals in terms of their effect on government finances. Analysis of most federal legislation doesn’t go much deeper, usually limited to effects on GDP growth and other antiquated measures. Because of this, legislation with big economic payoffs has been shot down when a deeper economic analysis would have quieted the critics. Replacing or supplementing fiscal notes at the state level and GDP at the federal level with more meaningful and comprehensive metrics like the GPI will go a long way towards bringing clarity to economic policy debates often tragically muddled by ideological rhetoric.